Shares in Nasdaq-listed cryptocurrency alternate Coinbase (COIN) are quick approaching an overvaluation threshold, 10x Analysis, headed by Markus Thielen, mentioned Friday. Thielen is recommending a pair commerce that includes a brief place in COIN and a simultaneous lengthy place in bitcoin BTC.
In a observe despatched to purchasers, Thielen defined that Coinbase's fundamentals, primarily buying and selling volumes, haven't stored tempo with the rally in share costs, that are quick nearing the overvaluation threshold, a basic setup for a “tactical reversal.”
“Whereas Coinbase hasn’t fairly breached the +30% overvaluation threshold, it’s approaching quick, and regardless of being one of many few high-quality, listed crypto performs, its present premium suggests the chance of underperformance forward,” Thielen detailed. “Merchants seeking to capitalize on this dislocation may take into account going lengthy Bitcoin whereas shorting Coinbase, or utilizing choices by promoting a COIN name and shopping for a BTC name to specific the identical view with outlined danger.”
Elementary disconnect
Based on 10x's linear regression mannequin, 75% of Coinbase's inventory worth motion is defined by bitcoin's worth and buying and selling volumes. Meaning simply 25% of COIN's worth motion is led by different components, such because the potential influence of Circle's IPO or U.S. crypto and macro developments.
In quantitative phrases, it means that COIN's worth tends to rise by $20 for each $10,000 transfer in BTC and by $24 for each $100 billion improve in buying and selling quantity.
The latest worth motion suggests the rally is overextended relative to bitcoin's worth and buying and selling volumes. Shares in Coinbase have surged 84% over the previous two months, whereas bitcoin has risen by simply 14%.
“Not solely is that this premium stretched relative to bitcoin’s present worth, but it surely additionally seems disconnected from underlying crypto buying and selling volumes, that are hovering round $108 billion,” mentioned Thielen. “This uncommon deviation suggests Coinbase’s valuation is prolonged and susceptible to imply reversion.”
The report mentioned that different components – Circle’s IPO on June 3, the June 17 “GENIUS” stablecoin invoice and the shopping for frenzy from Korean traders – appear to have been priced in.
“As this momentum cools, evident within the latest reversals of Circle, KakaoPay, and Metaplanet, there may be rising danger that Coinbase shares is also nearing a neighborhood high,” Thielen mentioned.
